© Nefiodow, Leo and Nefiodow, Simone, 2014
There is no uniform progression in market economy; in fact, upturns and downturns regularly take turns with each other. The short business cycles that last approximately three years are called Kitchin cycles; the medium-term ones lasting between 7 to 11 years are called Juglar cycles. However, there are also long economic cycles that last between 40 to 60 years. They are named Kondratieff cycles after their discoverer Nikolai Kondratieff. The triggers for these long waves are groundbreaking inventions that are called basic innovations below.
The Previous Kondratieff Cycles
Economists have empirically proven five Kondratieff cycles since the late 18th century (Illustration 1). The first long cycle was triggered by the invention of the steam engine and fundamental innovations in textile manufacturing (the fly-shuttle loom, the spinning mule, the spinning jenny). The railroad and the Bessemer converter led the economy to the second Kondratieff. It was the great era of big steel.
Illustration 1: The Long Waves in the World Economy
Source: Nefiodow, Leo and Nefiodow, Simone: The Sixth Kondratieff, 2014.
The third Kondratieff was the first long cycle that was carried by the practical application of scientific knowledge. The discovery of the electro-dynamic principle by Werner von Siemens enabled the conversion of mechanical energy into electrical energy, and the findings on the composition of matter through quantum physics imparted the knowledge of manipulating material – the foundation of modern chemistry.
The third Kondratieff ended with the global economic crisis of the late 1920s and early 1930s. The new upswing, the fourth Kondratieff, came with the automobile and petrochemistry. It marked the height of the industrial society and brought mass transit to the streets and to the air. The fourth Kondratieff drew to a close with the massive crude oil price increases by OPEC in the late 1970s.
The fifth Kondratieff began in the early 1950s. Its driving force originated in computer-based information technology. With constantly increasing speed, information technology permeated all areas of society and turned the world into a global village of information. During the fifth Kondratieff, the industrial society changed over into an information society. Since then, economic growth is primarily defined as growth in the information sector.
The fifth Kondratieff ended at the turn of this century. At the same time it ended, the sixth Kondratieff cycle began. The carrier of this new Kondratieff cycle will be health in a holistic sense.
The Sixth Kondratieff
At first glance, this statement may come as a surprise. Can health expenditures, which are economically classified as pure expenses and as something negative that should thus be avoided if possible, take on the role of a locomotive for growth and employment in the future?
At this point, we should recall the results of modern growth theory. Machinery, capital or jobs are only ostensibly the most important sources for economic growth. The main source for economy growth is productivity progress. The sixth Kondratieff is carried by an improved productivity in handling health (a more detailed description of the sixth Kondratieff can be found on this homepage).
The Kondratieff Cycles from a Historical Point of View
It is mainly economists, who explicitly delve into Kondratieff cycles, but also representatives of other disciplines such as sociologists, natural scientists, technologists and psychologists. Two American historians – George Modelski and William Thompson – explored the question of how the rise of great powers can be explained. They concluded that the most important prerequisite for the development of a great power is the leading mastery of a Kondratieff cycle. (Table 1).
The reasons for this are easy to understand. Those who lead in commanding the basic innovation of a Kondratieff cycle, develop the most highly productive economy; those who have the most highly productive economy are able to finance the largest armies and fleets and the most modern weapons; those who own the most modern weapons and most powerful militaries can force their way on other countries and sooner or later become a political superpower.
Table 1: The Relationship between Kondratieff Cycles and Great Powers
Source: With reference to George Modelski and William R. Thompson’s assertions. Leading sectors and world powers: The coevolution of global politics and economics. 1996.
This correlation can be seen in the example of Great Britain. From 1300-1800, the country’s economy practically stagnated; the per capita income only grew at a 0.2 percent annual rate. With the first two Kondratieff cycles between 1800 and 1900, the country built up the most productive economy in the world and became the great power of the 19th century. At the height of the second Kondratieff in 1880, almost a fourth of the global production of goods came from Great Britain (Table 2).
Table 2: Percentage Distribution of the World’s Industrial Production
Source: P. Bairoch: International Industrialization Levels from 1750 to 1980.
From an economist’s point of view, the first Kondratieff began in the 18th century. Official statistics, which are the most important data source for economists, do not allow us to go any farther back into the past. As historians, Modelski and Thompson were not restricted by this limitation, but reverted to additional data. In doing so, they were able to trace the Kondratieff cycles all the way back to the 10th century. From a historical point of view, the basic innovation of the first Kondratieff (K1) was the invention of paper and printing technology. It led to the rise of the Northern Sung dynasty to great power status (Table 1).
Kondratieff cycles can be empirically demonstrated for more than 1000 years. When such regularity exists over such a long period and given the many economic, technological and social changes that took place during this time, it can simply not be a coincidence.
This is why we may assume that the regularity highlighted by Modelski and Thompson will continue to exist. A new Kondratieff cycle – the sixth Kondratieff based on the economist’s method of counting – has started in the late 1990s. After the end of the fifth Kondratieff, all hopes are now resting on this long wave. However, in its early phase it does not have the power to ensure a steady boom. Nevertheless, it will – just like the previous Kondratieff cycles before it – increasingly determine the main direction of economic and social development over the next few decades. The challenge in the early 21st century consists of identifying the sixth Kondratieff and consistently using it. Those companies, regions and countries that succeed in this, will be among the winners.
Translation by Elena O´Meara